Demand-pull inflation happens when the level of aggregate demand grows faster than the underlying level of supply. This may be easier to imagine, if you think of supply as the level of capacity. If our capacity to produce is growing at 3%, and the level of demand grows at the same rate or slower then we don't have a problem. We can produce all we need. However, if our capacity grows at 3%, but demand grows faster, then we have a problem. In effect we have 'too much money chasing too few goods', and we can't manage to produce all we need. Something has to give, and it is prices that are forced up, therefore causing inflation. We can see all this in the diagram below. As the aggregate demand curve shifts to the right, the price level rises - inflation.